|8-K||2019-08-27||Sale of Shares|
|SPB||Spectrum Brands Holdings||2,661|
|GAIFB||Graham Alternative Investment Fund II||0|
|BREIT||Blackstone Real Estate Income Trust||0|
|Part 1 - Financial Information|
|Item 1. Financial Statements.|
|Note 1 - Nature of Business and Summary of Basis of Presentation|
|Note 2 - Going Concern|
|Note 3 - Stockholders' Equity|
|Note 4 - Related Party Transactions|
|Note 5 - Note Payable|
|Note 6 - Convertible Note|
|Note 7 - Commitment and Contingencies|
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.|
|Item 3. Quantitative and Qualitative Disclosures About Market Risk.|
|Item 4. Controls and Procedures.|
|Part II - Other Information|
|Item 1. Legal Proceedings.|
|Item 1A. Risk Factors.|
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.|
|Item 3. Defaults Upon Senior Securities.|
|Item 4. Mine Safety Disclosures.|
|Item 5. Other Information.|
|Item 6. Exhibits.|
|Balance Sheet||Income Statement||Cash Flow|
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|[X]||QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|For the quarterly period ended September 30, 2019|
|[ ]||TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
|For the transition period from ___________ to _____________|
|Commission file number 000-55470|
(Exact Name of Registrant as Specified in its Charter)
(State or other Jurisdiction of
Incorporation or Organization)
|5550 Nicollet Avenue, Minneapolis, MN||55419|
|(Address of Principal Executive Offices)||(Zip Code)|
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.4.05 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
[X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company:
|Large accelerated filer||[ ]||Accelerated filer||[ ]|
|Non-accelerated filer||[X]||Smaller reporting company||[X]|
|Emerging growth company||[X]|
If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 7(a)(2)(B) of the Securities Act: [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Securities registered pursuant to Section 12(b) of the Act:
|Title of each class||Trading Symbol(s)||Name of each exchange on which registered|
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 75,860,000 shares of common stock are issued and outstanding as of November 15, 2019.
TABLE OF CONTENTS
|PART 1 – FINANCIAL INFORMATION|
|Item 1.||Financial Statements (Unaudited).||5|
|Item 2.||Management Discussion and Analysis of Financial Condition and Results of Operations.||12|
|Item 3.||Quantitative and Qualitative Disclosures About Market Risk.||14|
|Item 4.||Controls and Procedures.||15|
|PART II – OTHER INFORMATION|
|Item 1.||Legal Proceedings.||15|
|Item 1A.||Risk Factors.||15|
|Item 2.||Unregistered Sales of Equity Securities and Use of Proceeds.||15|
|Item 3.||Defaults upon Senior Securities.||15|
|Item 4.||Mine Safety Disclosures.||16|
|Item 5.||Other Information.||16|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:
|●||our lack of products or revenues and the substantial risks inherent in the establishment of a new business venture;|
|●||our very limited operating history and our unproven business plan;|
|●||our history of losses;|
|●||our ability to continue as a going concern;|
|●||our ability to raise capital to fund our business plan, pay our operating expense and satisfy our obligations;|
|●||conflicts of interest facing certain of our officers and directors;|
|●||future reliance on third party manufacturers;|
|●||our future ability to comply with government regulations;|
|●||our lack of experience in selling, marketing or distributing products;|
|●||our future ability to establish and maintain strategic partnerships;|
|●||our possible future dependence on licensing or collaboration agreements;|
|●||the inability of Chong Corporation to protect the intellectual property which is licensed to us, and risks of possible third-party infringement of intellectual property rights;|
|●||anti-takeover provisions of Delaware law; and|
|●||the impact of penny stock rules on the future trading in our common stock.|
You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements, Part 1. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed on March 29, 2019 (the “2018 10-K”) and our other filings with the Securities and Exchange Commission. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “VapAria,” “we,” “our,” “us,” and similar terms refers to VapAria Corporation, a Delaware corporation, and our wholly-owned subsidiary VapAria Solutions Inc., a Minnesota corporation (“VapAria Solutions”). In addition, “third quarter 2019” refers to the three months ended September 30, 2019, “third quarter 2018” refers to the three months ended September 30, 2018, “2019” refers to the year ending December 31, 2019 and “2018” refers to the year ended December 31, 2018.
Unless specifically set forth to the contrary, the information which appears on our web site at www.vaparia.com is not part of this report.
Consolidated Balance Sheets
|September 30, 2019||December 31, 2018|
|Cash and cash equivalents||$||7,440||$||1,477|
|Total Current Assets||10,573||3,542|
|Intellectual property, net||208,958||222,071|
|LIABILITIES & STOCKHOLDERS’ DEFICIT|
|Loan from related party||681,044||627,044|
|Total Current Liabilities||832,454||763,930|
|Preferred Stock: $0.0001 par value; 10,000,000 shares authorized; no shares outstanding at September 30, 2019, 500,000 shares issued and outstanding at December 31, 2018||-||50|
|Common Stock: $0.0001 par value; 200,000,000 shares authorized; 75,860,000 shares issued and outstanding at September 30, 2019 and 75,310,000 at December 31, 2018||7,586||7,531|
|Additional paid-in capital|
|TOTAL STOCKHOLDERS’ DEFICIT||(612,923||)||(538,317||)|
|TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIT||$||219,531||$||225,613|
See accompanying notes to unaudited consolidated financial statements
Consolidated Statements of Operations
|Three months ended September 30,||Nine months ended September 30,|
|General and administrative||$||6,851||$||7,137||$||20,864||$||21,000|
|Research and development||-||9,025||-||14,052|
|Total Operating Expenses||23,141||27,111||68,172||75,279|
|Total Operating Loss||(23,141||)||(27,111||)||(68,172||)||(75,279||)|
|Net loss available to common shareholders||$||(35,158||)||-||$||(84,606||)||-|
|Basic and diluted loss per common share||(0.00||)||(0.00||)||(0.00||)||(0.00||)|
|Basic and diluted weighted average shares outstanding||75,513,271||75,260,000||75,378,498||75,260,000|
See accompanying notes to unaudited consolidated financial statements
Consolidated Statements of Changes in Stockholders’ Deficit
For the three and nine months ended September 30, 2019 and 2018
|Series A |
|$0.0001 Par Value||Number |
|Paid in Capital||Accumulated Deficit||Total|
|Balance, June 30, 2018||500,000||$||50||75,260,000||$||7,526||$||1,131,392|
|Balance, September 30, 2018||500,000||$||50||75,260,000||$||7,526||$||1,131,392||$||(1,650,750||)||$||(511,782||)|
|Balance, December 31, 2017||500,000||$||50||75,260,000||$||7,526||$||1,131,392||$||(1,569,087||)||$||(430,119||)|
|Balance, September 30, 2018||500,000||$||50||75,260,000||$||7,526||$||1,131,392||$||(1,650,750||)||$||(511,782||)|
|Balance, June 30, 2019||500,000||$||50||75,310,000||$||7,531||$||1,616,273||$||(2,211,619||)||$||(587,765||)|
|Common stock issued for dividend||-||-||50,000||5||9,995|
|Preferred stock converted to common stock||(500,000||)||(50||)||500,000||50|
|Balance, September 30, 2019||-||$||-||75,860,000||$||7,586||$|
|Balance, December 31, 2018||500,000||$||50||75,310,000||$||7,531||$||1,616,273||$||(2,162,171||)||$||(538,317||)|
|Common stock issued for dividend||-||-||50,000||5||9,995|
|Preferred stock converted to common stock||(500,000||)||(50||)||500,000||50||-|
|Balance,September 30, 2019||$||-||75,860,000||$||7,586||$||1,626,268||$|
See accompanying notes to unaudited consolidated financial statements
Consolidated Statements of Cash Flows
|Nine Months Ended September 30,|
|Cash flows from operating activities|
|Adjustments to reconcile net loss to net cash used in operations:|
|Changes in operating assets and liabilities:|
|Net cash used by operating activities||(48,037||)||(61,369||)|
|Cash flows from financing activities|
|Borrowings on debt with related party||54,000||56,000|
|Net Cash provided by financing activities||54,000||56,000|
|Net change in cash and cash equivalents||5,963||(5,369||)|
|Cash and cash equivalents, beginning of period||1,477||7,658|
|Cash and cash equivalents, end of period||$||7,440||$||2,289|
|Supplementary disclosure of non-cash activities|
|Preferred Stock converted to common stock||50|
|Stock Dividends on Preferred Series A stock||10,000||-|
See accompanying notes to unaudited consolidated financial statements
Notes to Unaudited Consolidated Financial Statements
September 30, 2019
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF BASIS OF PRESENTATION
Nature of Business
VapAria Corporation (“we”, the “Company”) was incorporated under the laws of the State of Delaware on December 21, 2009 under the name OICco Acquisition IV, Inc. On August 19, 2014 we changed our corporate name to VapAria Corporation.
As of the date of this report the Company is a specialty pharmaceutical company engaged in the research, design and development of methods and medicants to address chronic conditions with novel, vapor-centric approaches to pain management, appetite suppression, smoking cessation and various sleep disorders.
The Company has limited operations and, while our executive officers devote a substantial amount of their time to the Company without cash compensation, as of September 30, 2019, had no employees.
The Company has a fiscal year end of December 31.
Basis of Presentation
Basis of Presentation - The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of September 30, 2019 have been made.
Certain information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and footnotes thereto in the Company’s December 31, 2018 audited financial statements. The results of operations for the period ended September 30, 2019 are not necessarily indicative of the operating results for the full year.
Reclassifications – Certain reclassifications may have been made to our prior year’s consolidated financial statements to conform to current year presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.
Recent Accounting Pronouncements – In February 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”) to increase the transparency and comparability about leases among entities. Additional ASUs have been issued subsequent to ASU 2016-02 to provide supplementary clarification and implementation guidance for leases related to, among other things, the application of certain practical expedients, the rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payment that depend on an index or rate and certain transition adjustments. ASU 2016-02 and these additional ASUs are now codified as Accounting Standard ASU 842 – “Leases” (“ASC 842”). ASC 842 supersedes the lease accounting guidance in ASU 840 “Leases” (“ASC 840”) and requires lessees to recognize a lease liability and a corresponding right-of-use (ROU) asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. The Company adopted the new standard January 1, 2019 using the modified-retrospective method.
The new standard provides a number of optional practical expedients in transition. The Company has elected the “package of practical expedients”, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the land easements practical expedients as this is not applicable to the Company. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, that the Company does not recognize ROU assets or lease liabilities for leases with terms of 12 months or less. The Company’s existing lease has a remaining term of 3 months and has no renewal options and as such was exempted from ASC 842. Consequently, as of the date of implementation on January 1, 2019, the adoption of ASC-842 did not have any impact to the Company’s consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Improvements to Non-Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to non-employees for goods and services. Under the literature, most of the guidance on such payments to non-employees would be aligned with the requirements for share-based payments granted to employees currently under ASC 718, “Compensation – Stock Compensation”. Board members are the only non-employees that the Company grants to, who are treated as “employees” under ASC 718. The guidance is effective for public companies for fiscal years and interim fiscal periods within those fiscal years, beginning after December 15, 2018. The Company’s adoption of ASU 2018-07 did not have an impact on the Company’s consolidated financial statements.
NOTE 2 – GOING CONCERN
The Company’s financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company has recurring losses, has limited cash and no source of revenue sufficient to cover its operations costs and allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company will be dependent upon the raising of additional capital. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
NOTE 3 – STOCKHOLDERS’ EQUITY
On August 27, 2019 the Company paid the final annual dividend of 50,000 shares of common stock with a fair value of $10,000 to the sole shareholder of our Series A Convertible Preferred Stock (“Series A Preferred”), Chong Corporation, a common control entity.
On August 27, 2019 the Company then converted the 500,000 shares of Series A Preferred to 500,000 shares of our common stock. The Series A Preferred designations, rights and preferences provided that each share of the Series A Preferred automatically converted into shares of our common stock on a one for one basis on the fifth anniversary of the date of issuance.
On September 30, 2019, the Company had 75,860,000 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding.
NOTE 4 – RELATED PARTY TRANSACTIONS
During the first nine months ended September 30, 2019, the Company borrowed an aggregate of $54,000 from Chong Corporation, a common control entity. The balance outstanding at September 30, 2019 due Chong Corporation is $681,044. The loan is unsecured, noninterest bearing and due on demand.
We maintain our corporate offices at 5550 Nicollet Avenue, Minneapolis, MN 55419. We lease the premises from 5550 Nicollet, LLC, an affiliate of Mr. Chong, having renewed the lease in December 2018 for an additional 12-month term at an annual rental of $9,300 with expiration on December 31, 2019. Rent was $6,975 for this nine-month period in both 2019 and 2018. As of September 30, 2019, $8,525 is due to 5550 Nicollet LLC and that amount is reflected on the balance sheet in the accompanying financial statements.
NOTE 5 – NOTE PAYABLE
As of September 30, 2019, the Company has a note payable in the amount of $50,000 due to an individual. The note was issued on May 30, 2013 and bears eight per cent (8%) annual interest. The note was amended with an August 31, 2019 due date whereupon the maturity date of the principal and accrued interest on the note was further extended to December 31, 2019.
The Company analyzed the modification of the term under ASC 470-60 “Trouble Debt Restructurings” and ASC 470-50 “Extinguishment of Debt”. The Company determined the modification is not substantial and the transaction should not be accounted for as an extinguishment with the old debt written off and the new debt initially recorded at fair market value with a new effective interest rate.
NOTE 6 – CONVERTIBLE NOTE
The Company assumed an unsecured convertible note for $40,000 that was issued on July 14, 2014 as part of the acquisition of VapAria Solutions. The note bears interest at 10% per annum. The note is convertible into shares of our common stock at $0.08 per share. The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting. The Company therefore performed an analysis to determine if the conversion option was subject to a beneficial conversion feature and determined that the instrument does not have a beneficial conversion feature.
The note was originally due on September 1, 2014. The Company entered into a note amendment on September 1, 2014 and the due date was extended on numerous occasions and was recently extended to December 31, 2019. The Company analyzed the modification of the term under ASC 470-60 “Trouble Debt Restructurings” and ASC 470-50 “Extinguishment of Debt”. The Company determined the modification is not substantial and the transaction should not be accounted for as an extinguishment with the old debt written off and the new debt initially recorded at fair value with a new effective interest rate.
NOTE 7 – COMMITMENT AND CONTINGENCIES
The December 2013 License Agreement with Chong Corporation, a common control entity, beginning in the calendar year in which the first licensed products or licensed services takes place, the Company is required to pay to Chong Corporation, a related entity, a 3% royalty for revenues with a $50,000 annual minimum royalty commitment. To date, no revenue has been recorded.
The December 31, 2013 agreement with Chong Corporation also requires us to pay for the costs associated with maintaining the patent applications and patents licensed to us. For the nine months ended September 30, 2019 and 2018 Chong did not report that it incurred any costs associated with this December 2013 License Agreement.
The following discussion of our financial condition and results of operations for the three and nine months ended September 30, 2019 and 2018 should be read in conjunction with the unaudited consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward looking statements because of several factors, including those set forth under “Cautionary Statements Regarding Forward-Looking Information” appearing earlier in this report, Part I. Item 1A. Risk Factors appearing in our 2018 10-K, and our other filings with the Securities and Exchange Commission. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report.
Overview and plan of operations
We are a pre-clinical specialty pharmaceutical company. Prior to forming VapAria Solutions in 2010, our management had more than 25 years’ collective experience in vaporization and vapor delivery of medicants, having been partners in a joint venture with pioneers in the industry and having undertaken significant work internationally researching and developing products, shepherding them through the patent process and introducing them into the U.S. wholesale and retail supply chain.
Our initial goal was to leverage rights we acquired in December 2013 from an affiliate to develop and successfully launch a product in partnership with well-capitalized and experienced industry participants based on our exclusive license and exclusive options to license patented and patent-pending technologies under the December 2013 Agreement and formulations designed to significantly improve on current electronic nicotine delivery systems and other consumer products in the marketplace. Throughout 2018 and into the first three quarters of 2019, in addition to discussions with third party financing sources, we continued to engage in substantive discussions with several international companies which have expressed interest in our licensed technology in pursuit of this strategy. These discussions have involved demonstrations of our fully functional, programmable prototypes.
In mid-2015 we adjusted our business focus owing to continuing research, development and design throughout and, thus, we completed a full design of a product embodiment based on our proprietary technology, authorized the production of fully functional prototypes and are scheduling pre-clinical assessments for the prototypes. In the first nine months of 2019 we had no research and development costs compared to $14,052 in the same period in 2018, related to these efforts. In addition to taking delivery of our prototypes, in the third quarter of 2016, we engaged an industry expert with 28 years of relevant experience to design IND-enabling studies that should take us from pre-clinical stage to clinical stage and make the FDA 505(b)(2) pathway to regulatory approval and commercialization available to us. Certain of the costs associated with these studies are included in our funding needs for the next 12 months described below. If we are unable to raise sufficient capital to fund these costs, our ability to continue our commercialization efforts will be adversely impacted.
Our management, through the Chong Corporation, a common control entity that is the licensor of the intellectual property rights we acquired in December 2013 and January 2016, has built an extensive and robust portfolio of intellectual property that includes patented and patent-pending methods of vaporization and patented and patent-pending medicants and herbal remedies identified for their effectiveness and suitability to address the markets identified above. Historically we have relied upon related party loans that, as of September 30, 2019, totaled $681,044. In the first nine months of 2019, the loan increased by $54,000 and these proceeds were used to pay expenses associated with ordinary business expenses associated with identifying, meeting with and negotiating with potential business partners and our general operating expenses, including the payment of our obligations. Our management has worked without cash compensation. We estimate that we will need to raise between $1 million and $2 million over the next 12 months to continue to implement our business plan.
We may seek to raise the necessary capital through future public or private debt or equity offerings of our securities, although we do not have any commitments from any third parties to provide any capital to us. While we believe that the exclusive rights to the proprietary technology on which our business is predicated could provide us with a significant competitive advantage if we can bring one or more products to market, our ability to accomplish that in the near term is dependent on a successful prototype and positive pre-clinical assessments of the prototype. Given the current lack of a public market for our common stock, our status as a pre-clinical stage company and the difficulties small companies experience in accessing the capital markets, we expect to encounter difficulties in pursuing public or private capital raises. We may also seek to minimize our capital needs by securing partnerships or joint ventures with well capitalized companies in the pharmaceutical or OTC consumer products industries. Until we are able to raise all or a portion of the necessary capital, our ability to continue to implement our business plan will be in jeopardy.
For the first nine months of 2019 we reported a net loss of $74,606 and net cash used in operations of $48,037 compared to a net loss of $81,663 and net cash used in operations of $61,369 for the first nine months of 2018. At September 30, 2019, we had cash on hand of $7,440 and an accumulated deficit of $2,246,777. The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2018 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our minimal cash and no source of revenues which are sufficient to cover our operating costs. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to raise capital, develop a source of revenues, report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company.
Results of operations
We did not generate any revenues from our operations in any of the 2019 or 2018 periods. Our total operating expenses for the third quarter of 2019 and the nine months then ended decreased 14.6% and 9.4% respectively, over those reported in the comparable 2018 periods. General and administrative expenses, which include amortization, rent, and website hosting expenses, decreased 4.0% in the third quarter of 2019 from the comparable period in 2018 and showed an overall decrease of 0.6% for the first nine months as compared to the first nine months of 2018.
Research and development expenses were not incurred in the third quarter of 2019 compared to $9,025 in the third quarter of 2018. The first nine months of 2019 also showed no research and development expenses versus $14,052 over this same period in 2018. This reduction is directly attributable to the progress made in this area. Professional fees increased 48.8% in the third quarter of 2019 compared to 2018 and rose 17.6% for the nine months ended September 30, 2019 from the comparable period in 2018. The increase in financial audit fees and additional legal fees contributed to this overall increase in professional fees in 2019 when compared to 2018.
We expect that our operating expenses will increase as we continue to develop our business and we devote additional resources towards promoting that growth, most notably reflected in anticipated increases in general overhead, salaries for personnel and technical resources, as well as increased costs associated with our SEC reporting obligations. However, as set forth elsewhere in this report, our ability to continue to develop our business and achieve our operational goals is dependent upon our ability to raise significant additional working capital. As the availability of this capital is unknown, we are unable to quantify at this time the expected increases in operating expenses in future periods.
Liquidity and capital resources
Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. As of September 30, 2019, we had $7,440 in cash and cash equivalents and a working capital deficit of $821,881 as compared to $1,477 in cash and cash equivalents and a working capital deficit of $760,388 at December 31, 2018. Our current liabilities increased $68,524 from December 31, 2018, reflecting increases in interest payable, accounts payable and in the loan amount from a related party. Our sole source of operating capital during the first nine months of 2019 came from additional borrowing from a related party which loaned us an additional $54,000.
We do not have any commitments for capital expenditures. Our working capital is not sufficient to fund our operations for at least the next 12 months and to satisfy our obligations as they become due. In January 2019, the holder of a $50,000, principal amount, note agreed to the extension of the due date of the note from January 31, 2019 to August 31, 2019 and then again to December 31, 2019. In January 2019 the holder of a $40,000 convertible note, principal amount, and convertible into 500,000 shares of our common stock at the option of the holder, agreed to an extension to the due date of the convertible note from January 31, 2019 to August 31, 2019 and then again to December 31, 2019. While there are no assurances the holder will elect to convert the note, in that event we granted the holder demand and piggyback registration rights for those shares. We also owe a related party $681,044 which is due on demand. We do not have the funds necessary to repay these obligations or to fund the costs associated with filing a registration statement if the noteholder converts the note and exercises its registration rights. As described earlier in this report, we will need to raise between $1,000,000 and $2,000,000 in additional capital during the next 12 months. As we do not have any firm commitments for all or any portion of this necessary capital, there are no assurances we will have sufficient funds to fund our operating expenses and continued development of our products and to satisfy our obligations as they become due. In that event, our ability to continue as a going concern is in jeopardy.
Summary of cash flows
|September 30, 2019||September 30, 2018|
|Net cash (used) in operating activities||$||(48,037||)||$||(61,369||)|
|Net cash provided by financing activities||$||54,000||$||56,000|
Our cash used in operating activities declined 21.7% in the first nine months of 2019 compared to the first nine months of 2018. During the first nine months of 2019 and 2018 we used the cash primarily to fund our net loss in the period.
During the each of the first nine months of 2019 and 2018 net cash provided by financing activities consisted of borrowings from Chong Corporation, a common control entity.
Critical accounting policies
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The critical accounting estimates include estimates related to the impairment of long-lived assets. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our audited consolidated financial statements for 2018 appearing in our 2018 10-K.
Recent accounting pronouncements
In February 2016, the FASB issued ASU 2016-02 “Leases,” which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard is now effective and has been adopted by the Company using the modified retrospective method. We do not have any leases exceeding a year and, therefore there is no accounting impact.
In June 2018, the FASB issued ASU 2018-07, Improvements to Non-Employee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to non-employees for goods and services. Under the literature, most guidance on such payments to non-employees would be aligned with the requirements for share-based payments granted to employees currently under ASC 718, Compensation – Stock Compensation. The Company’s adoption of ASU 2018-07 did not have an impact on the Company’s consolidated financial statements.
Off balance sheet arrangements
As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
Not applicable for a smaller reporting company.
Evaluation of Disclosure Controls and Procedures.
We maintain “disclosure controls and procedures” as such term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure due to the presence of continuing material weakness in our internal control over financial reporting as reported in our 2018 10-K. These material weaknesses in our internal control over financial reporting result from limited segregation of duties and limited multiple level of review in the financial close process.
The existence of the continuing material weaknesses in our internal control over financial reporting increases the risk that a future restatement of our financials is possible. In order to remediate these material weaknesses, we will need to expand our accounting resources. We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal control over financial reporting on an ongoing basis, however, we do not expect that the deficiencies in our disclosure controls will be remediated until such time as we have remediated the material weaknesses in our internal control over financial reporting. Subject to the availability of sufficient capital, we expect to expand our accounting resources during 2019 in an effort to remediate the material weaknesses in our internal control over financial reporting.
Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
In addition to the other information set forth in this report you should carefully consider the risk factors in Part I, Item 1A in our 2018 10-K and our subsequent filings with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. These cautionary statements are to be used as a reference in connection with any forward-looking statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission.
Not applicable to our company’s operations.
On August 7, 2019 we entered into an Amendment with the Estate of Donald J. Bores, Sr. to extend the maturity date of the promissory note in the principal amount of $50,000 originally issued to Mr. Bores from August 31, 2019 to December 31, 2019.
On August 7, 2019 we also entered into an Amendment with Artemisa Holdings, Inc. to extend the maturity date of the convertible note in the principal amount of $40,000 from August 31, 2019 to December 31, 2019.
The terms and conditions of these extensions are qualified in their entirety by reference to the agreements which are filed as Exhibits 10.1 and 10.2, respectively, to this report.
|No.||Exhibit Description||Form|| |
|2.1||Share Exchange Agreement and Plan of Reorganization dated April 11, 2014 by and between OICco Acquisition IV, Inc., VapAria Corporation and the listed shareholders||8-K||4/11/14||2a|
|3.1||Amended and Restated Certificate of Incorporation||S-1||6/30/10||3.C|
|3.2||Certificate of Amendment to the Amended and Restated Certificate of Incorporation||8-K||8/21/14||3.4|
|3.3||Certificate of Amendment to the Amended and Restated Certificate of Incorporation||10-Q||11/19/16||3.5|
|10.1||Addendum dated August 7, 2019 to extend maturity date of the promissory note due Donald J. Bores, Sr.||Filed|
|10.2||Addendum dated August 7, 2019 to extend maturity date of the convertible, note due Artemisa Holdings, Inc.||Filed|
|31.1||Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer||Filed|
|31.2||Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer and Chief Financial Officer||Filed|
|101.INS||XBRL Instance Document||Filed|
|101.SCH||XBRL Taxonomy Extension Schema Document||Filed|
|101.CAL||XBRL Taxonomy Extension Calculation Linkbase Document||Filed|
|101.DEF||XBRL Taxonomy Extension Definition Linkbase Document||Filed|
|101.LAB||XBRL Taxonomy Extension Label Linkbase Document||Filed|
|101.PRE||XBRL Taxonomy Extension Presentation Linkbase Document||Filed|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|November 15, 2019||By:||/s/ Alexander Chong|
|Alexander Chong, Chief Executive Officer|
|November 15, 2019||By:||/s/ Daniel Markes|
|Daniel Markes, Chief Financial Officer|